What Is the FTSE 100 and Why It Matters for UK Investors

The FTSE 100 is a stock market index made up of the 100 largest companies listed on the London Stock Exchange, weighted by market capitalisation. Launched in 1984 with a base value of 1,000, it is the most-quoted UK stock market number and the basis for most UK-focused index funds. It is also one of the most misunderstood indexes in the world: roughly 75-80% of FTSE 100 revenue is earned outside the UK, almost none of it is tech, and it has spent the past 15 years being quietly written off by people who confuse "boring" with "broken."

This article walks through what the FTSE 100 actually is, what it owns, why it pays such high dividends, and why it still deserves a place in the conversation for UK investors even after a long stretch of underperformance against the US.

Contents

• What is the FTSE 100?
• How a company gets in (and kicked out)
• What does the FTSE 100 actually own?
• FTSE 100 sector breakdown 2026
• Why is the FTSE 100 dividend yield so high?
• Currency exposure: the hidden engine
• FTSE 100 vs S&P 500: long-term performance
• Why UK investors still care
• How to buy the FTSE 100 in the UK
• Frequently Asked Questions

What is the FTSE 100?

In one paragraph: the FTSE 100 is the headline index of the London Stock Exchange, tracking the 100 largest UK-listed companies by free-float market capitalisation. It is reviewed quarterly, weighted toward old-economy sectors (financials, energy, healthcare, consumer staples), and pays a dividend yield of around 3.5-4.5%. Around three-quarters of its underlying revenue comes from outside the UK.

The Financial Times Stock Exchange 100 Index, mercifully shortened to FTSE 100 (and pronounced "footsie"), launched on 3 January 1984 with a base value of 1,000. By 2026 it had grown to roughly 8,000-9,000, depending on the day, having taken nearly 40 years to multiply about 8x without dividends reinvested.

It is maintained by FTSE Russell, owned by the London Stock Exchange Group itself. Constituents are reviewed quarterly, with promotions from the FTSE 250 and relegations into it based on market cap rankings on review days.

Like most major indexes, it is free-float market cap weighted. The largest companies (HSBC, Shell, AstraZeneca, BP, Unilever) take up the biggest slots. The smallest constituents barely register.

How a company gets in (and kicked out)

To be eligible, a company must be:

• Listed on the London Stock Exchange Main Market
• Trading in pounds sterling
• Meeting minimum free-float and liquidity requirements

Companies are ranked by market cap each quarter. If a current FTSE 100 member falls to 111th place or below, it is automatically demoted to the FTSE 250. If a FTSE 250 member rises to 90th place or higher, it is automatically promoted. The 90/110 rule prevents constant churn at the boundary.

This mechanical process produces some quirks. Companies headquartered in places like Russia or Kazakhstan have ended up in the FTSE 100 because they happened to list in London. Big domestic UK companies that list elsewhere (like ARM, which now lists on Nasdaq) are not eligible.

What does the FTSE 100 actually own?

The most important fact about the FTSE 100, missed in nearly every casual conversation about it, is that it is not a UK economy index. Roughly 75-80% of the revenue earned by FTSE 100 companies comes from outside the UK. Shell sells fuel globally. AstraZeneca sells drugs globally. Unilever sells soap and ice cream globally. HSBC's biggest market is Asia.

When sterling weakens, FTSE 100 earnings translate back into more pounds, and the index tends to rise. When sterling strengthens, the opposite happens. The FTSE 100 is, in effect, a basket of global multinationals whose share price is denominated in pounds.

If you actually want a domestic UK economy bet, the FTSE 250 is closer (around 50% UK revenue) and the FTSE Small Cap or a UK micro-cap fund is the cleanest exposure to genuinely UK-focused businesses. For how the FTSE 100 sits alongside global benchmarks, see our overview of the major stock market indexes UK investors should know.

FTSE 100 sector breakdown 2026

The FTSE 100 is heavily skewed toward old-economy sectors:

That last line is the one that should jump out. The FTSE 100 has almost no tech. The few "tech" names that exist (companies like Sage and Auto Trader) are mid-cap businesses and do not move the index. Anyone holding a FTSE 100 tracker is making an implicit bet on banks, oil, miners, drug companies, and household goods, with virtually zero exposure to the global software and platform economy.

That helps in regimes when commodities and energy outperform tech (2022 was a textbook example). It hurts the rest of the time, which has been most of the past 15 years.

Why is the FTSE 100 dividend yield so high?

The FTSE 100 typically yields 3.5-4.5%, around three times the S&P 500. Several reasons stack on top of each other:

1. Old-economy sector mix. Banks, oil majors, tobacco, telecoms and utilities are mature businesses with limited reinvestment opportunities, so they return cash to shareholders.
2. Cultural preference. UK institutional investors (pension funds, insurance companies) historically demand income, which pressures CEOs to maintain or grow dividends rather than build cash piles.
3. Lower price-to-earnings multiples. A given dividend per share looks like a bigger yield when the share price is lower. The FTSE 100 trades at around 10-12x earnings against the S&P 500's 22-25x. Yield is partly the mechanical consequence of that valuation gap.

A high yield is not the same as a high total return. A 4% dividend that grows at 2% gives you 6% per year. A 1.3% dividend that grows at 8% gives you 9-10%. The S&P 500 has won that math comfortably over the past decade. But for investors who specifically need income today (retirees drawing from a portfolio, pension drawdown strategies that rely on natural yield), the FTSE 100 is one of the most efficient sources of dividends in the developed world. For more on why a high reported yield is not always the bargain it looks like, see our piece on why dividend investing feels safer but isn't.

Currency exposure: the hidden engine

Because most FTSE 100 revenue is foreign, the index has a built-in currency hedge against a weak pound. When sterling fell from $1.50 to $1.20 after the Brexit referendum in 2016, the FTSE 100 jumped, driven almost entirely by the translation effect on overseas earnings. The same thing happened in 2022 during the brief mini-budget crisis.

This means the FTSE 100 can be a useful diversifier inside a UK investor's portfolio. If your salary, your house, and your living costs are all in pounds, owning some assets that benefit from a weaker pound provides a hedge against UK-specific shocks. A pure global tracker (priced in pounds but holding US, European and Asian assets) achieves something similar, but the FTSE 100 has the advantage of also generating high income while you wait for that protection to matter.

FTSE 100 vs S&P 500: long-term performance

The chart everyone draws when they want to dunk on the FTSE 100 is the price-only one against the S&P 500 since 2010. On that basis, the S&P 500 has more than tripled while the FTSE 100 has barely doubled. That comparison is honest, but incomplete:

• It excludes dividends. The FTSE 100 has paid out far more income, so on a total return basis the gap closes meaningfully.
• It is a single-period start-end comparison. Pick a different start year (say, 2000) and the picture changes. From 2000-2009, the FTSE 100 outperformed the S&P 500 because the dot-com bust and Global Financial Crisis hit US tech harder.
• Over the very long run (1900-2024, per the UBS Global Investment Returns Yearbook by Dimson, Marsh and Staunton), UK equities have returned roughly 5.4% real per year, against around 6.7% for the US. The gap exists but is much smaller than the recent 15 years suggest.

The honest read: the FTSE 100 has lagged badly for the last decade-plus, but assuming that always continues is the same mistake people made in the late 1990s when they were sure Japanese equities would lead forever (they then lost almost everything for 25 years). Mean reversion is a real force.

Why UK investors still care

Even with global tracker ETFs available for 0.20% or less, the FTSE 100 has a few specific roles in a UK portfolio:

• Income-focused portfolios. A 4% sustainable yield is hard to find in developed markets and the FTSE 100 is a credible source.
• Sterling-aligned holdings for retirees. Drawdown investors who want income paid in their home currency, without monthly currency conversion, often blend a global tracker with a FTSE 100 income fund.
• Inflation hedge. Energy and miner exposure makes the FTSE 100 historically more resilient than the S&P 500 during inflationary regimes (like 2022).
• Diversifier within global trackers. The UK is only around 3.5% of a FTSE All-World tracker, and that is small enough that some UK investors deliberately overweight it. (For more on the trade-offs, see our note on currency hedging for UK investors.)

None of that is an argument for FTSE 100-only. It is an argument for a small deliberate slot rather than zero.

How to buy the FTSE 100 in the UK

The simplest options on UK platforms in 2026:

• iShares Core FTSE 100 UCITS ETF (ISF) - 0.07% TER, distributing, by far the most-traded FTSE 100 ETF in the UK.
• Vanguard FTSE 100 UCITS ETF (VUKE) - 0.09% TER, distributing. Vanguard's accumulating equivalent is VUKG.
• HSBC FTSE 100 UCITS ETF (HUKX) - 0.07% TER, distributing.
• SPDR FTSE UK All Share UCITS ETF (FTAL) - 0.20% TER, broader exposure including FTSE 250 and FTSE Small Cap, often a better choice if you want "the UK market" rather than "the 100 largest."

All of these are available inside an ISA or SIPP through the major UK platforms. Before you buy, it is worth knowing how to read an ETF factsheet so you can sanity-check the TER, distribution policy and tracking error. The FTAL (or its equivalent FTSE All-Share trackers) is arguably the better instrument for a UK home bias, because it captures the whole listed UK market rather than just the multinational mega-caps.

Frequently Asked Questions

Is the FTSE 100 a good investment?

It depends on what you want from it. As a long-term capital growth vehicle on its own, it has lagged the S&P 500 badly for over a decade. As an income source, sterling hedge, and diversifier inside a global portfolio, it earns its place. Most UK investors are best served by holding the FTSE 100 as part of a broader allocation rather than as their main holding.

What is the FTSE 100 in simple terms?

The FTSE 100 is the index of the 100 largest companies listed on the London Stock Exchange. It includes oil giants (Shell, BP), banks (HSBC, Barclays), drug companies (AstraZeneca, GSK), miners (Rio Tinto, Glencore), and consumer brands (Unilever, Diageo). Most of the companies in it earn most of their money outside the UK.

What is the difference between the FTSE 100 and the FTSE 250?

The FTSE 100 holds the 100 largest companies on the LSE, mostly global multinationals with around 75-80% foreign revenue. The FTSE 250 holds the next 250 largest, which are smaller, more domestic, and earn around 50% of revenue inside the UK. The FTSE 250 is the better proxy for the UK economy. The FTSE 100 is a global multinational basket priced in sterling.

Does the FTSE 100 pay dividends?

Yes, and unusually high ones by global standards. Dividend yield typically sits between 3.5% and 4.5%, paid by the underlying companies. ETFs like ISF distribute those dividends to investors quarterly. Accumulating versions reinvest them automatically inside the fund.

Why has the FTSE 100 underperformed the S&P 500?

Mostly because of sector mix. The S&P 500 has been carried by mega-cap tech (Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta) which has had a remarkable decade. The FTSE 100 has almost no tech, so it missed that move entirely. It has also been weighed down by energy and bank weakness through much of 2010-2020. None of those factors are guaranteed to continue.

How is the FTSE 100 calculated?

The FTSE 100 is a free-float market-cap weighted index. Each constituent's weight is set by its share price multiplied by the number of shares freely available to public investors (excluding founder, government or strategic stakes), divided by the total free-float market cap of all 100 members. The index level is recalculated continuously through the trading day from constituent share prices and rebalanced quarterly by FTSE Russell.

Read Next

• What Is the S&P 500 and How to Buy It in the UK - the US counterpart most UK investors compare the FTSE 100 against.
• Major Stock Market Indexes UK Investors Should Know - how the FTSE 100 fits alongside FTSE All-World, MSCI World, and Nasdaq 100.
• Currency Hedging for UK Investors - the flip side of the FTSE 100's foreign-revenue exposure.
• Popular UCITS ETFs for UK Investors - the wider list of trackers, including the FTSE 100 ETFs covered above.

Further Reading:

Smarter Investing - Tim Hale - Hale's UK-centric guide to building a sensible portfolio is the best reference for thinking about how much (if any) FTSE 100 belongs in a globally diversified holding. (Affiliate link - we may earn a small commission at no extra cost to you.)

The Little Book of Common Sense Investing - John Bogle - The case for owning the whole market through low-cost index funds, and why fee drag matters more than picking the "right" index. (Affiliate link - we may earn a small commission at no extra cost to you.)